It’s typically mentioned that economics is counterintuitive. However, it’s additionally mentioned that economics is about human conduct. This could indicate that no less than the fundamental concepts of economics ought to be fairly straightforward to grasp and clarify. (Assuming, in fact, that you’re in actual fact a human.)
One necessary level in economics is in regards to the margin – pondering on the margin, choices being made on the margin, and so forth. On the one hand, it generally appears difficult to get folks to grasp what it means to decide on the margin, or to grasp the distinction between marginal value and common value. Some folks try and illustrate the distinction utilizing math. You may, for instance, give somebody an equation for calculating complete value, after which inform them that marginal value is the primary by-product of complete value. Then, with slightly fundamental calculus, they will work out the marginal value of some course of. That is neat, exact, and makes for tidy examination questions which are straightforward to grade. It’s additionally fully attainable to ace an examination full of those math issues and depart class on the finish of the semester with out ever actually internalizing the concept of creating a call on the margin.
However, if folks actually do make choices on the margin, shouldn’t or not it’s straightforward to clarify the idea to folks by mentioning these choices being made, in circumstances which are straightforward to grasp and acknowledge? Sure, really. Take into account the next meme. For those who acknowledge what the meme is saying and perceive why it’s humorous, you then intuitively perceive the distinction between common and marginal value, and also you perceive what making a call on the margin means:
Assuming you’re sufficiently old to shave, you’ll instantly acknowledge this. Nonetheless, I’m going to interrupt a cardinal rule of comedy and clarify the joke.
Shaving cartridges are costly. To make the mathematics straightforward, let’s assume this pack prices $20. The typical value per cartridge is $5. As you utilize a razor, it will get duller, making it much less snug and efficient for shaving. In order the primary cartridge wears down after 5 shaves, you turn to the second. Since you paid the total worth for the pack up entrance, the marginal value of tossing out the primary cartridge for the second is basically zero, whereas the marginal profit is fairly excessive. The identical holds true for tossing out the second for the third, and the third for the fourth. However when you begin utilizing the fourth, issues change. Now the marginal value of tossing out the fourth and switching to a brand new cartridge means paying the total worth of a brand new pack. Consequently, folks stretch the fourth cartridge within the pack far longer than the primary three. All 4 razors have the identical common value – however they don’t all have the identical marginal value with regards to use and disposal. And since folks make their choices on the margin, you find yourself seeing the form of conduct highlighted within the meme.
Sadly, there are individuals who can go via economics packages with glorious grades on the premise of their excessive degree of mathematical acumen, but by no means take in the financial mind-set in a method that’s introduced by this straightforward meme. Math is a positive factor and positively has official makes use of in economics, however fixing math issues isn’t the identical factor as doing financial evaluation.
There’s an previous saying that when you can’t clarify one thing in a method that an eight yr previous can perceive it, you then don’t actually perceive it your self. Possibly there’s an analogy right here. For those who can put collectively a easy meme that highlights how indifference curves work, that demonstrates your understanding of the subject way over calculating partial derivatives, utilizing utility features, or referencing finances traces. Anybody who’s respectable at math can do the latter, significantly within the context of a classroom examination. However solely somebody who has actually absorbed the concept can do the previous.
